13 June, 2016
On 24 May 2016, the Competition Commission (the "Commission") released its report on the first market study into the residential building renovation and maintenance market in Hong Kong.
Suspicious patterns found
Consistent with the Commission's priority in combating bid-rigging cartels, the study was undertaken in response to public concerns over alleged collusive activities. Focused on analysing tender data provided by the Urban Renewal Authority and the Hong Kong Housing Society, the Commission’s aim is to identify suspicious patterns so as to focus on investigation and decide where to look more closely.
With the use of its quantitative screening analysis, the Commission has identified possible associations between certain consultants and contractors as well as between certain contractors. In particular, the Commission found that contractors were more likely to win a tender where they were associated with the consultant organising the tender. The study also found that many of the consultants' bidding patterns often appeared out of line with the underlying costs.
While the Commission’s findings were consistent with the widely alleged bid-manipulation practices in Hong Kong, there is no proof of such activities having actually taken place as the Commission’s screening analyses are neither suited nor intended to conclusively prove contraventions. The Commission, however, will launch further investigations if similar patterns are detected now that the Competition Ordinance has come into full force.
While the Commission's study focused on the residential building renovation and maintenance market, bid-rigging can occur in any market where tender processes are used. Common forms of bid-rigging include:
- bid-suppression: where a competitor agrees to withdraw a bid or to refrain from bidding;
- cover pricing: where a competitor agrees to submit a bid that is too high to win (or with unacceptable conditions);
- bid-rotation: where competitors continue to bid but agree to take turns being the winning bidder;
- market allocation: where competitors agree not to compete for certain customers or in certain geographic areas.
Just two days after the Commission released the results of its market study, the Commission, along with representatives from the Hong Kong Police Force, ICAC, Chartered Institute of Procurement & Supply and the Institute of Purchasing & Supply of Hong Kong, launched the "Fighting Bid-rigging Cartels" Campaign. The campaign is intended to raise community awareness of bid-rigging.
As part of the campaign, the Commission has also published two brochures, "Fighting bid-rigging" and "Getting the most from your tender". While the former brochure outlines common types of bid-rigging and provides guidance on dealing with suspected big-rigging, the latter is designed to assist procurement officers in preventing and detecting possible bid-rigging cartels.
With suspicious trends of bid-rigging identified, the Commission will call upon both the public and private sectors to work on collecting and building databanks of building maintenance-related tenders. Other forms of preventive measures suggested by the Commission include further education and outreach activities, as well as the possibility of asking consultants and contractors to declare that no bid-rigging has occurred during the tender process. Where misleading declarations have been found, the tenderer may be able to take private action against the consultant or contractor in respect of misleading declarations.
For further information, please contact:
Timothy Hill, Partner, Hogan Lovells